Inherited debt and what to do with it?

Unfortunately, there are also a lot of problems associated with dealing with an estate. What if you inherit a debt? Is it possible to defend yourself? And what if, for example, two-year-old children inherit such a debt? Find out more in this article.

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Inheritance is regarded as a right to the estate – that is, to the “totality of the estate” of the testator, which may include both property and debts. It is only out of the estate as a whole that individual heirs are awarded shares – shares in the estate. The only things that do not form part of the estate are, for example, rights and obligations that are so strongly linked to the person of the testator that it is not possible for them to pass to someone else.

The problem, of course, is that because the estate is taken as a whole, it is possible that the debts will be as high as the value of the estate or exceed it. The debts of the testator then pass to the heirs (although the law may provide for exceptions, but these are only the bare minimum).

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In the event that such a situation should arise, there are four ways to avoid the estate (or part of it) being passed on to the heirs that is burdened with debts:

Renounce the right of inheritance before the death of the testator

If someone wishes to waive his or her right to inherit, he or she must do so during the lifetime of the person from whom he or she inherits. In such a case, the heir and the testator must draw up a contract of renunciation , certified by a notary public, which excludes the person from the succession proceedings after the death of the testator. The contract can be revoked, but only in writing in the form of an official document, also during the lifetime of the testator. The waiver of the right of succession also affects the descendants of the waiver, unless the contract provides otherwise.

Tip: Saying goodbye to the deceased is an emotionally very difficult situation. Unfortunately, the worries don’t end there, because there are inheritance proceedings to be held, during which the deceased’s estate is divided among the heirs. Read on to find out how to go through the inheritance proceedings without worrying.

This procedure is not often used, but it can be useful, for example, if the testator gives property to one of his descendants and wants the rest of the family to share it fairly without later disputes. He can enter into a contract of renunciation with the donated descendant, thereby excluding him from further inheritance.

Tip: Donating real estate is a big step in life. We’ll help you make it happen so you don’t miss the mark. We will prepare a complete contractual and legal service for you, including the donation contract, registration in the Land Registry and taxes. We will do it within 48 hours, flawlessly and professionally.

Refuse the inheritance

The heir has the possibility to refuse the inheritance even after the death of the deceased. To formally refuse, a declaration must be sent to the competent court within one month of the heir becoming aware of his or her right to inherit. For heirs living abroad, the deadline is extended to three months. The refusal is usually made during the court hearing, but it can also be made outside this occasion. Once refused, the inheritance cannot be withdrawn and the heir loses the possibility to change his/her decision. A succession cannot be refused only in part; the entire share is always refused.

Tip: Have you inherited a property and are wondering about inheritance tax? Inheritance tax is abolished. However, it is still a good idea to keep some financial and tax aspects of inheritance in mind.

An heir who is entitled to a compulsory share (for example, a descendant of the deceased) may also refuse the whole inheritance, including that share, which is one quarter of what he would otherwise have been entitled to. The law also allows him or her to refuse the inheritance but to keep the mandatory share, i.e. a quarter of his or her legal share, which is exempt from debts and is calculated on the total value of the estate.

Renounce the inheritance before the court in the succession proceedings in favour of another heir

Another way in which an heir may proceed to renounce his or her share of the inheritance or part of it is by renouncing this right in favour of another heir. This process usually takes place during the court proceedings and requires the consent of the heir to whom the succession is transferred. The renunciation may concern the whole inheritance or a specific part of it.

Disinheritance

The last option is the alienation of the succession, which is implemented as a mutual agreement between the heir and the person who takes over the succession by means of a public deed. This method has similar characteristics to the renunciation of inheritance, but differs in that the other party to the agreement can be any person and not only the heir designated by will or by law.

Which option to choose?

Refusal of inheritance is therefore the easiest and surest way. Also, none of the above methods allows only to obtain property through inheritance and to avoid debts; thus the heir, for example, renounces the estate as a whole by refusing.

The heir may also propose that an inventory of the estate be made – that is, that the value of the property be determined and the debts forming part of the estate be taken into account; the court will then order an inventory of the estate.

It is also possible to propose that the court publicly invite creditors to declare their claims against the deceased – i.e. to come forward and state that the deceased owed them debts which are then included in the estate. This may limit the cases where the debts exceed the assets in the estate – even if all the assets are to be used only to pay the debts, if this procedure is used, only those creditors who apply within a certain time limit will have the right to settle the debt. Thus, it is possible for an heir to get “to zero” but not “to the negative.” However, there are also exceptions to this possibility, so it will not be 100% effective (e.g., if the creditor has a lien or other similar right on some item that belongs to the estate).

Tip: Inheritance proceedings have precise rules that determine, for example, the amount of the shares. Sometimes, however, the share may be reduced by gifts the heir received from the testator during his or her lifetime. This is called collation. How does this principle apply and when does it occur? Find out in our article.

Children get into the situation with inherited debts because they can be heirs, but usually their legal representatives act for them – i.e. it may happen that the legal representative does not refuse the inheritance, although this might be appropriate in the case of a heavily indebted estate, the court confirms the inheritance and then problems arise.

Are you still unsure about your inheritance? Let us know and we willadvise you.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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